Bitcoin is on the verge of splitting in two

Bitcoin is in the midst of a civil war. It has been simmering for some time, though it remained largely out of view to the general public until last month, when a prominent Bitcoin developer announced that the cryptocurrency and the technology underlying were, in his opinion.

The developer, a former Google engineer named Mike Hearn, believed that bitter infighting and intransigence among the core development team had paralyzed the system, which was facing growing pains that, unaddressed, would cripple the currency so badly it was unlikely to recover. Pundits piled on to pronounce Bitcoin dead, and even its staunchest advocates admitted it was unclear if the project would continue to thrive.

In the three weeks since, a fascinating debate has played out across the globe, as the Bitcoin community struggled to find a way forward. The future remains uncertain, but for now, the cryptocurrency has split in two, with the core development team going in one direction, and a group of influential miners, exchanges, and startups going in another, a separation known as a hard fork. They have created competing versions, Bitcoin Core and Bitcoin Classic, each stemming from the same source code, but now controlled by separate groups of programmers and with major differences in their roadmap.

It’s an intriguing test case for open-source software, highlighting how decentralized systems must grapple with internal conflict. It could end up shining a light on the resilience of the blockchain technology that underlies Bitcoin. But one of our era’s most interesting new ideas, today valued at over $5 billion, could just as easily go up in smoke.

First, let me try and lay out the issue Bitcoin is facing. The basic system works as follows: Bitcoin miners use processing power to complete complex math problems, the cryptographic proof of work that validates bitcoin transactions on an open ledger, known as the blockchain. Miners are rewarded for this validating work with bitcoins. Up until now, each block in the chain was limited to 1mb in size, and the rate at which blocks are mined is relatively fixed. But as the number of users and transactions on the network has grown, this limit has begun to create backlogs, leading to slow and unreliable payments.

For those who want the Bitcoin system to continue to grow and thrive, this is troubling. Merchants can’t rely on digital transactions that can take minutes or hours to validate. A segment of the community has been arguing for an increase in the block size, with proposals over the last few years for changes to the core software that would increase each block in size to 2, 4, or even 8 megabytes. But another segment of the Bitcoin community has been pushing back, arguing that increasing the block size erodes a core feature, some might say ideological principle, of Bitcoin: decentralization.